T&S Group Inc.

There is a high degree of customer concentration, with the Kioxia Group (26.5% of net sales), the Hitachi Group (19.0%), and the Toshiba Group (16.8%) together accounting for 62.3% of net sales. Changes in the business policies or management conditions of these key customers could directly affect the Group's business performance. The Group has maintained relationships through long-standing continuous transactions, but the structural risk of dependence on specific customers continues.

The Group's business depends on engineers with technical expertise and strong interpersonal skills, and securing, developing, and retaining excellent personnel is a top priority. An IT personnel shortage is expected to intensify over the medium to long term as the IT development business expands, and a significant decrease in engineers due to unmet recruitment plans or turnover could affect business performance. Although the Group has implemented effective measures for personnel development and retention, addressing the structural issue of a market-wide personnel shortage remains difficult.

In the course of engaging in product development and system development work for client companies, the Group handles large amounts of personal information and confidential information, and there is a risk that engineers may intentionally or negligently leak information obtained at client sites to outside parties. If an information leak occurs, it could have a material impact on business performance, including issues of management responsibility, litigation, reputational damage, and substantial compensation payments. As countermeasures, the Group has obtained ISMS certification (JIS Q 27001:2023, registration number IR0227, valid until March 23, 2027) and conducts regular training and internal audits for all employees.

If actual work hours exceed estimates due to increased work volume from specification changes or additional work on a project, this may result in low profitability or losses. In addition, if work cannot be completed and delivered by the specified deadline, late delivery penalties may be incurred, and if final delivery becomes impossible, compensation for damages may arise, potentially affecting business performance. The Group seeks to mitigate this risk by clearly defining specifications and acceptance procedures in individual contracts.

The engineer dispatch business is a licensed business under the Worker Dispatch Act, and four companies—T&S Corporation, TS System Solutions Co., Ltd., Intfor Co., Ltd., and Extage Co., Ltd.—have obtained licenses. If any of these companies falls under grounds for disqualification or violates laws and regulations, revocation of the license could make it difficult to continue the business. Future amendments to laws or changes in interpretation could also adversely affect business operations, and the Group has established a monitoring system through its Risk and Compliance Committee and internal audits.

Fluctuations in economic trends and the information services market environment could result in reduced corporate investment in information systems, intensified price competition beyond expectations, and delays in responding to technological innovation. In addition, if the business environment deteriorates due to changes in laws, tax systems, accounting standards, and other regulations, or fluctuations in social infrastructure such as electricity and telecommunications, this could affect the Group's business results and financial condition. This entails a structural risk in which performance is influenced by trends in the overall information services market.

The Group conducts research and development related to AI algorithms, image processing, edge devices, and other areas through joint research with universities and other institutions, and the business in the AI Solutions category depends on the results of this research. If research results do not progress as expected, this could affect the performance of businesses in that category. Due to the nature of joint research with external institutions, there are limits to controlling the progress and direction of results, which constitutes a risk factor.

In development services based on contracted work agreements, the Group may be subject to warranty liability or product liability claims related to work to be completed or deliverables. The Group seeks to mitigate this risk by clearly defining specifications and acceptance procedures in individual contracts (purchase orders), but if such claims are pursued, this could affect its business and performance. This risk is particularly likely to materialize in projects deeply involved in customers' product development, where issues can arise from the quality of deliverables.

When outsourcing part of its work, the Group is subject to the Act against Delay in Payment of Subcontract Proceeds, etc. to Subcontractors (Subcontract Act), which requires the issuance of Article 3 documents and the preparation of Article 5 documents. If a violation of laws or regulations occurs, this could result in recommendations or guidance from the Japan Fair Trade Commission as well as fines, potentially causing a significant loss of social credibility and affecting business results and financial condition. Although the Group has established a compliance system through the establishment of compliance regulations and the introduction of an internal whistleblowing system, complete elimination of this risk is difficult.

The Group has granted stock acquisition rights to officers, employees, external collaborators, and its business partner Yokohama Bridge Investment Limited Partnership, and the number of potential shares outstanding as of the end of the month prior to the filing date of this document has reached 1,171,900 shares (equivalent to 15.4% of the total number of issued shares). If these stock acquisition rights are exercised, the value of shares held by existing shareholders and their voting rights ratio could be diluted. Although these rights were granted for incentive purposes and to enhance corporate value, it should be noted that the scale of dilution is relatively large, at 15.4% of the total number of issued shares.